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IRB knows how much you have in that offshore bank account (AEOI explained in layman’s terms)

Key points:

a. Malaysia is a participating country of AEOI System (Automatic Exchange of Information) initiated by the OECD.

b. Malaysian tax authority will automatically receive information on offshore bank account owned by its citizens/residents.

c. All Malaysian financial institutions and banks are required to provide information on bank account owned by foreigners or non- Malaysian residents to the tax department. And the tax authority will transmit such information to the account holder’s country of residence.

More than 100 countries have committed to be part of the AEOI System (Automatic Exchange of Information), through which every AEOI participating country will automatically exchange and receive information relating to financial accounts (bank accounts) owned by its citizens or tax residents, without having to send a specific request.

Malaysia as one of the participating countries of AEOI and has enacted the following legislations:

a. The Income Tax (Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information) Order 2016;

b. The Income Tax (Convention on Mutual Administrative Assistance in Tax Matters); and

c. Income Tax (Automatic Exchange of Financial Account Information) Rules 2016 (AEOI Rules).

Exchange of information

Under the AEOI rules, every bank (or financial institution) in Malaysia is required to collect, undertake due diligence obligations and furnish a yearly information report to the Director General of Inland Revenue (DGIR) of Malaysia that contains details relating to reportable accounts of foreigners and non-residents (both individuals and entities are included). Details to be furnished would include name, address, jurisdiction of residence, tax identification number of the account holder, and the account balance or value as of the end of the relevant calendar year or assigned date.

Under the agreed AEOI timeline, the first reporting in respect of the calendar year 2017 will have to be filed by all financial institutions to the DGIR by 30 June 2018. Information collected will then be transmitted to the respective account holder’s country.

Example: Mr. Roger Gibson is an Australian and has a bank account with Public Bank Malaysia. Public Bank is required to furnish Roger’s bank account information to DGIR (Malaysian tax authority) in the yearly information report. And DGIR will send Roger’s bank account information to the Australian Tax Office automatically.

As a participating country, the Malaysian tax authority (DGIR) will also automatically receive information on foreign bank accounts owned by Malaysian citizens and residents.

Example: Linda Ng is a Malaysian and has a bank account in Canada. The Canadian tax authority will automatically send Linda’s information related to the Canadian bank account to the Malaysian tax authority.

The first exchange of information will commence in 2018 for Malaysia. Below is the status of intended commencement date for other jurisdictions.

Should I be worried?

1. It is not wrong or illegal to have an offshore bank account, but hiding money derived from tax evaded income or illegal activities is. 2. Presently, Malaysians are not required to disclose their foreign bank account information unless it is related to their business or taxable activities in Malaysia or have been directed to do so by the authority or written laws. 3. Through AEOI the tax department would now know how much money a Malaysian resident has in his/her offshore bank accounts. This information would certainly give them a good sense of who they should target for tax audit or to keep an eye on.

Let’s talk: StanleyCo is a Licensed Tax Agent and GST Agent, please contact us if you need assistance with the topic above.

Disclaimer: Every effort has been made to provide accurate information. However, the information and regulations contained in this article are subject to changes and amendments by the relevant authority at any time. As such, the information in this article may not be current.

And the information provided in this article is general commentary only and shall not be considered as advice or recommendation. As all tax situations are specific to their facts and will differ from the situations in this article - if you have specific tax questions you should consult a licensed tax agent.

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